B-203483.OM, AUG 20, 1981

B-203483.OM, AUG 20, 1981

TEAM LEADER, CED - RALPH LOWRY:

AS ONE FACET OF AN AUDIT OF THE CFTC, YOU ARE REVIEWING THE OPERATION OF THE CFTC REPARATIONS PROGRAM ESTABLISHED BY SECTION 14 OF THE COMMODITY EXCHANGE ACT, AS AMENDED, 7 U.S.C. SEC. 18 (1976). IN CONNECTION WITH YOUR REVIEW, YOU ASKED THAT WE ADDRESS A SERIES OF QUESTIONS CONCERNING THE PROCEDURES USED IN REPARATIONS PROCEEDINGS. THE PRINCIPAL QUESTION YOU ASKED IS WHETHER THE CFTC'S REPARATIONS PROCEDURES ARE SUBJECT TO THE ADJUDICATION PROVISIONS OF THE ADMINISTRATIVE PROCEDURE ACT (APA), 5 U.S.C. SECS. 554, 556, 557 (1976). WE BELIEVE THE APA IS APPLICABLE TO CFTC'S REPARATIONS PROCEDURES. ACCORDINGLY, RECOMMENDED CHANGES TO THE REPARATIONS PROCEDURES MUST BE EVALUATED IN TERMS OF THEIR CONSISTENCY WITH PERTINENT PROVISIONS OF THE APA AS WELL AS OTHER APPLICABLE LEGAL PRINCIPLES.

A MORE DETAILED ANALYSIS IS ATTACHED.

ATTACHMENT

ADMINISTRATIVE PROCEDURES IN CFTC

DIGESTS:

(1) ADJUDICATION PROCEDURES OF SECTIONS 554, 556 AND 557 OF ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. SECS. 554, 556, 557, APPLY TO REPARATIONS HEARINGS CONDUCTED PURSUANT TO SECTION 14 OF COMMODITY EXCHANGE ACT (CEA), AS AMENDED, 7 U.S.C. SEC. 18 (1976). SEE CASES CITED.

(2) COMMODITY FUTURES TRADING COMMISSION (CFTC) REGULATIONS AUTHORIZING SUMMARY DISPOSITION OF REPARATIONS PROCEEDINGS, 7 C.F.R. SEC. 12.67, ARE CONSISTENT WITH SECTION 14 OF CEA, AS AMENDED, AND WITH SECTIONS 554, 556, AND 557 OF APA. SEE CASES CITED.

BACKGROUND:

SECTION 14 OF THE COMMODITY EXCHANGE ACT (CEA), AS ADDED BY THE COMMODITY FUTURE TRADING COMMISSION ACT OF 1974, PUB.L. NO. 93-463, 88 STAT. 1393, AUTHORIZES THE CFTC TO ADJUDICATE DISPUTES BETWEEN PERSONS REGISTERED UNDER THE CEA FN1 AND PERSONS CLAIMING INJURY CAUSED BY ANY VIOLATION OF THE CEA, OR RULES, REGULATIONS AND ORDERS ISSUED THEREUNDER, BY ANY PERSON REGISTERED UNDER THE CEA. UPON RECEIPT OF A COMPLAINT, THE COMMISSION "SHALL INVESTIGATE SUCH COMPLAINT AND IF, IN ITS OPINION THE FACTS WARRANT SUCH ACTION," HAVE THE COMPLAINT SERVED ON THE RESPONDENT (REGISTRANT) AND "AFFORD SUCH PERSON AN OPPORTUNITY FOR A HEARING THEREON BEFORE AN ADMINISTRATIVE LAW JUDGE DESIGNATED BY THE COMMISSION ***." 7 U.S.C. SEC. 18(B). HOWEVER, WHERE THE CLAIMED DAMAGES DO NOT EXCEED $5,000, A HEARING IS NOT REQUIRED AND PROOF IN SUPPORT OF THE COMPLAINT AND RESPONDENT'S ANSWER MAY BE SUPPLIED IN THE FORM OF DEPOSITIONS AND VERIFIED STATEMENT OF FACTS. ID.

IF, AFTER A HEARING ON THE COMPLAINT, THE COMMISSION DETERMINES THAT THE RESPONDENT HAS VIOLATED ANY PROVISION OF THE ACT OR ANY RULE, REGULATION OR ORDER ISSUED THEREUNDER, THE COMMISSION SHALL DETERMINE THE AMOUNT OF THE DAMAGES DUE THE COMPLAINANT AND SHALL ISSUE "AN ORDER" DIRECTING THE RESPONDENT TO PAY THE AMOUNT DETERMINED DUE THE COMPLAINANT ON OR BEFORE A SPECIFIED DATE. 7 U.S.C. SEC. 18(E). THE COMMISSION'S "ORDER" IS REVIEWABLE IN THE APPROPRIATE UNITED STATES COURT OF APPEALS. FOR PURPOSES OF SUCH APPEAL, THE COMMISSION'S FINDING OF FACT, "IF SUPPORTED BY THE WEIGHT OF THE EVIDENCE, SHALL *** BE CONCLUSIVE." 7 U.S.C. SECS. 18(G), 9.

QUESTION 1: ARE THE ADJUDICATION PROCEDURES OF THE APA, 5 U.S.C. SECS. 554, 556, 557, APPLICABLE TO REPARATIONS PROCEEDINGS CONDUCTED PURSUANT TO SECTION 14 OF THE CEA, AS AMENDED, 7 U.S.C. SEC. 18?

ANSWER: YES.

DISCUSSION: FN2

SECTION 554 OF THE APA "APPLIES *** IN EVERY CASE OF ADJUDICATION REQUIRED BY STATUTE TO BE DETERMINED ON THE RECORD AFTER OPPORTUNITY FOR AN AGENCY HEARING" EXCEPT WHERE THE PROCEEDING FALLS WITHIN ONE OF SIX LISTED EXCEPTIONS. 5 U.S.C. SEC. 554(A). THE ONLY EXCEPTION THAT COULD ARGUABLY BE APPLICABLE HERE IS WHERE THE PROCEEDING INVOLVED IS "SUBJECT TO A SUBSEQUENT TRIAL OF THE LAW AND FACTS DE NOVO IN A COURT." 5 U.S.C. SEC. 554(A)(1). SECTION 554(C)(2) FURTHER PROVIDES THAT UNLESS THE PARTIES ARE ABLE TO DETERMINE A CONTROVERSY BY CONSENT, THE PROCEDURAL FORMALITIES OF SECTIONS 556 AND 557 ARE APPLICABLE. 5 U.S.C. SECS. 554(C)(2), 556, 557.

A.

IS THE REPARATION PROCEEDING AN "ADJUDICATION" AS DEFINED BY THE APA?

THE APA DEFINES AN "ADJUDICATION" AS THE "AGENCY PROCESS FOR THE FORMULATION OF AN ORDER." 5 U.S.C. SEC. 551(7). AN "ORDER" IS "THE WHOLE OR PART OF A FINAL DISPOSITION *** OF AN AGENCY IN A MATTER OTHER THAN RULE MAKING BUT INCLUDING LICENSING." 5 U.S.C. SEC. 551(B). SINCE THE REPARATIONS PROCEEDING CLEARLY ENVISIONS THE FORMULATION OF AN "ORDER," 7 U.S.C. SEC. 18(E), AND SINCE THE REPARATIONS PROCEEDING DOES NOT FALL WITHIN THE DEFINITION OF A "RULE MAKING," 5 U.S.C. SEC. 551(5, 4), THE "REPARATIONS" PROCEEDINGS ARE "ADJUDICATIONS" AS DEFINED BY THE APA.

B.

IS THE ADJUDICATION "REQUIRED BY STATUTE TO BE DETERMINED ON THE RECORD AFTER OPPORTUNITY FOR AN AGENCY HEARING"?

SECTION 14(B) OF THE CEA CLEARLY PROVIDES "AN OPPORTUNITY FOR A HEARING" EXCEPT IN THOSE CASES WHERE THE AMOUNT OF DAMAGES CLAIMED IS LESS THAN $5,000. 7 U.S.C. SEC. 18(B). HOWEVER, SECTION 14 OF THE CEA DOES NOT SPECIFICALLY REQUIRE REPARATIONS PROCEEDINGS TO BE DETERMINED "ON THE RECORD." 5 U.S.C. SEC. 554(A).

ALTHOUGH SECTION 14 DOES NOT INDICATE IN SO MANY WORDS THAT THE REPARATIONS HEARING MUST BE DETERMINED "ON THE RECORD," THIS ALONE DOES NOT NECESSARILY DEFEAT APPLICATION OF THE ADJUDICATION PROCEDURES OF THE APA. FN3 INSTEAD THE COURTS WILL IMPLY AN "ON THE RECORD" REQUIREMENT WHERE THE SUBSTANTIVE CHARACTER OF THE PROCEEDINGS INVOLVED, ABSENT CONGRESSIONAL INTENT TO THE CONTRARY, INDICATE THAT THE PROTECTIONS AFFORDED THE PARTIES BY THE ADJUDICATION PROCEDURES OF SECTIONS 554, 556 AND 557 ARE PARTICULARLY APPROPRIATE. SEACOAST ANTI POLLUTION LEAGUE V. COSTLE, 572 F.2D 872, 876 (1ST CIR. 1978), CERT. DEN., 439 U.S. 824 (1978); MARATHON OIL CO. V. EPA, 564 F.2D 1253 (9TH CIR. 1977); UNITED STATES STEEL CORP. V. TRAIN, 556 F.2D 822 (7TH CIR. 1977); SEE ALSO UNITED STATES V. INDEPENDENT BULK TRANSPORT, INC., 480 F.SUPP. 474 (S.N.Y. 1979). WE BELIEVE THAT REPARATIONS PROCEEDINGS UNDER SECTION 14 OF THE CEA FALL PRECISELY WITHIN THE CATEGORY OF PROCEEDINGS FOR WHICH THE ADJUDICATORY PROVISIONS OF SECTIONS 554, 556 AND 557 OF THE APA WERE DESIGNED. SEE MARATHON OIL V. EPA, ABOVE, 564 F.2D AT 1262-64.

NOR IS THERE ANY INDICATION IN THE LEGISLATIVE HISTORY OF SECTION 14 OF THE CEA, AS AMENDED, THAT CONGRESS BY OMITTING THE PHRASE "ON THE RECORD" OR WORDS OF SIMILAR EFFECT, INTENDED TO DENY COMPLAINANTS AND RESPONDENTS IN REPARATIONS PROCEEDINGS THE PROTECTION OF THE APA'S ADJUDICATORY HEARING PROVISIONS. INDEED, THE LEGISLATIVE HISTORY OF SECTION 14 INDICATES THE CONTRARY IS TRUE. FN4

IN IMPLYING AN "ON THE RECORD" REQUIREMENT FOR PURPOSES OF SECTION 554(A) OF THE APA, THE FIRST AND NINTH CIRCUIT COURTS OF APPEALS HAVE RELIED ON THE FACT THAT THE AGENCY ACTION TO BE DECIDED AFTER AN OPPORTUNITY FOR A HEARING WAS SUBJECT TO JUDICIAL REVIEW. SEACOAST ANTI-POLLUTION LEAGUE V. COSTLE, 572 F.2D AT 876, N. 6, 877; MARATHON OIL V. EPA, 564 F.2D AT 1263. THESE COURTS REASONED THAT CONGRESS WOULD NOT HAVE SPECIFICALLY PROVIDED FOR JUDICIAL REVIEW OF AGENCY ACTION UNLESS CONGRESS ENVISIONED THAT THE AGENCY WOULD MAKE ITS DECISION ON THE BASIS OF EVIDENCE AVAILABLE TO THE REVIEWING COURT. SEACOAST ANTI-POLLUTION LEAGUE V. COSTLE, 572 F.2D AT 876-877. IN OTHER WORDS, THE AGENCY DECISION WOULD BE ON THE RECORD. MOREOVER, THE APA'S LEGISLATIVE HISTORY INDICATES THAT AN "ON THE RECORD" REQUIREMENT "CAN BE 'CLEARLY IMPLIED IN THE PROVISION FOR JUDICAL REVIEW *** IN THE CIRCUIT COURT OF APPEALS.'" SEE MARATHON OIL V. EPA, 564 F.2D AT 1263; NOTE, THE REQUIREMENT OF FORMAL ADJUDICATION UNDER SECTION 5 OF THE ADMINISTRATIVE PROCEDURE ACT, 12 HARVARD J. ON LEG. 194, 204, N. 48 (1975). THE FIRST CIRCUIT IN SEACOAST WENT SO FAR AS TO SUGGEST A RULE OF STATUTORY CONSTRUCTION TO RESOLVE THESE ISSUES: "WE ARE WILLING TO PRESUME THAT, UNLESS A STATUTE OTHERWISE SPECIFIES, AN ADJUDICATORY HEARING SUBJECT TO JUDICIAL REVIEW MUST BE ON THE RECORD." 572 F.2D AT 877.

WE FIND THE REASONING OF THESE CASES PERSUASIVE IN THE CONTEXT OF SECTION 14 OF THE CEA. AS NOTED EARLIER, THE COMMISSION'S FACTFINDINGS ARE CONCLUSIVE ON REVIEW "IF SUPPORTED BY THE WEIGHT OF THE EVIDENCE." U.S.C. SECS. 18(G), 9. SIMPLY AS A PRACTICAL MATTER, A REVIEWING COURT COULD NOT DISCHARGE THIS STANDARD OF REVIEW ABSENT A DETERMINATION ON THE RECORD. IN TERMS OF THE QUESTION HERE, MEANINGFUL REVIEW OF THE COMMISSION'S REPARATIONS ORDERS REQUIRES THE APPLICATION OF SECTIONS 554, 556 AND 557 TO REPARATIONS HEARINGS.

C.

DOES THE REPARATIONS PROCEEDING FALL WITHIN ONE OF THE LISTED EXCEPTIONS OF SECTION 554(A)?

THE ADJUDICATION PROVISIONS OF THE APA WILL NOT APPLY TO ADJUDICATIONS OTHERWISE WITHIN THE PROVISIONS OF SECTION 554(A) WHERE ANY OF SIX LISTED EXCEPTIONS ARE APPLICABLE. 5 U.S.C. 554(A). WE HAVE CONCLUDED THAT NONE OF THE SIX EXCEPTIONS ARE APPLICABLE TO REPARATIONS PROCEEDINGS UNDER SECTION 14 OF THE CEA, AS AMENDED. QUESTION 2 DISCUSSES THE APA'S EXCLUSION FROM COVERAGE UNDER THE ADJUDICATION PROVISIONS OF "MATTERS SUBJECT TO A SUBSEQUENT TRIAL OF FACTS AND LAW DE NOVO IN A COURT" IN GREATER DETAIL.

QUESTION 2: DOES THE LIMITED REVIEW OF COMMISSION REPARATIONS ORDERS UNDER SECTIONS 14(G) AND 6(B) OF THE CEA, AS AMENDED, 7 U.S.C. SECS. 14(G) AND 9(B), TRIGGER THE APPLICATION OF THE APA?

ANSWER: ONLY IN A LIMITED SENSE. SEE DISCUSSION BELOW.

DISCUSSION:

SECTION 14(G) DIRECTS THAT THE COMMISSION'S REPARATION ORDERS ARE REVIEWABLE IN THE UNITED STATES COURT OF APPEALS UNDER THE PROCEDURE PROVIDED IN SECTION 6(B) OF THE CEA. 7 U.S.C. SECS. 18(G), 9(B). SECTION 6(B) PROVIDES THAT ON APPEAL "THE FINDINGS OF THE COMMISSION AS TO THE FACTS, IF SUPPORTED BY THE WEIGHT OF EVIDENCE, SHALL IN LIKE MANNER BE CONCLUSIVE." 7 U.S.C. SEC. 9(B).

SECTION 554(A)(1) OF THE APA PROVIDES THAT EVEN THOUGH THE ADJUDICATION PROVISIONS ARE APPLICABLE TO THE AGENCY ACTION IN QUESTION, THEY NEED NOT BE APPLIED WHERE THE "MATTER IS SUBJECT TO A SUBSEQUENT TRIAL OF THE LAW AND THE FACTS DE NOVO IN A COURT." 5 U.S.C. SEC. 554(A)(1). OF COURSE, LIMITED REVIEW BY ITSELF DOES NOT TRIGGER APPLICATION OF THE APA; RATHER THE REVERSE IS TRUE, LIMITED REVIEW - DE NOVO REVIEW - PRECLUDES APPLICATION OF THE APA TO AN AGENCY ADJUDICATION. FURTHER, DE NOVO REVIEW OF AGENCY ACTION IS THE EXCEPTION. GENERALLY, ADMINISTRATIVE ADJUDICATIONS WILL ONLY BE SET ASIDE UNDER THE APA WHERE THE AGENCY FINDINGS ARE "UNSUPPORTED BY SUBSTANTIAL EVIDENCE ***." 5 U.S.C. SEC. 706(B). ALTHOUGH UNDER THE CEA THE COMMISSION'S REPARATIONS ORDERS MAY BE SET ASIDE IF NOT SUPPORTED BY THE "WEIGHT OF THE EVIDENCE," AS OPPOSED TO THE APA'S "SUBSTANTIAL EVIDENCE" TEST, IT IS NONETHELESS CLEAR THAT WHATEVER THE TECHNICAL DIFFERENCE BETWEEN THE TWO LEVELS OF REVIEW IS, CONGRESS DID NOT INTEND A DE NOVO REVIEW OF THE COMMISSION'S REPARATIONS ORDERS. FN5

H.R. 13113, AS REPORTED TO THE HOUSE OF REPRESENTATIVES, PROVIDED THAT JUDICIAL REVIEW OF COMMISSION ORDERS SHALL BE TO AN APPROPRIATE DISTRICT COURT AND THAT "SUCH SUIT *** SHALL BE A TRIAL DE NOVO AND SHALL PROCEED IN ALL RESPECTS LIKE OTHER CIVIL SUITS FOR DAMAGES, EXCEPT THAT THE FINDINGS OF FACT AND ORDER *** OF THE COMMISSION SHALL BE PRIMA-FACIE EVIDENCE OF THE FACTS THEREIN STATED." FN6 SEC. 105 OF H. R. 13113, 93D. CONG. 2D SESS. (1974). THE SENATE COMMITTEE ON AGRICULTURE AND FORESTRY AMENDED SECTION 106 OF H.R. 13113 TO LIMIT JUDICIAL REVIEW OF THE COMMISSION'S FINDINGS AND ORDER ONLY TO DETERMINE "IF THEY ARE SUPPORTED BY SUBSTANTIAL EVIDENCE." S. REP. NO. 93-1131 REPRINTED AT 1974 U.S.C. CONG. & AD. NEWS AT PP. 5843, 5847. THE CONFERENCE COMMITTEE ON H.R. 13113 REJECTED BOTH THE HOUSE AND SENATE REVIEW PROCEDURES IN FAVOR OF APPEAL TO THE COURT OF APPEALS PURSUANT TO SECTION 6(B) OF THE CEA. CONF. REP. NO. 93-1383 REPRINTED AT 1974 U.S.C. CONG. & AD. NEWS AT PP. 5894, 5896. ACCORDINGLY, CONGRESS REJECTED DE NOVO REVIEW IN FAVOR OF THE MORE GENERAL STANDARD OF REVIEW FOUND IN SECTION 6(B) OF THE CEA.

QUESTION 3: IS CFTC'S PROCEDURE FOR SUMMARY DISPOSITION OF REPARATIONS PROCEEDINGS CONSISTENT WITH SECTION 14'S HEARING REQUIREMENT FOR CLAIMS IN EXCESS OF $5,000?

ANSWER: YES.

DISCUSSION:

THE CFTC'S RULES OF PRACTICE GOVERNING REPARATIONS PROCEEDINGS PERMIT THE ADMINISTRATIVE LAW JUDGE, EITHER ON HIS OWN MOTION OR THAT OF A PARTY, TO SUMMARILY DISMISS ALL OR ANY PART OF THE PROCEEDING WHERE THERE IS NO GENUINE ISSUE AS TO ANY MATERIAL FACT NOR ANY NEED TO DEVELOP FURTHER FACTS IN THE RECORD AND A PARTY IS ENTITLED TO A DECISION AS A MATTER OF LAW. 17 C.F.R. SEC. 12.67. THE CFTC'S RULE GOVERNING SUMMARY DISPOSITION CONFORMS TO A LONG LINE OF CASES RECOGNIZING THAT "EVEN WHEN A STATUTE MANDATES AN ADJUDICATORY PROCEEDING, NEITHER THAT STATUTE NOR DUE PROCESS, NOR THE APA REQUIRES AN AGENCY TO CONDUCT A MEANINGLESS EVIDENTIARY HEARING WHEN THE FACTS ARE UNDISPUTED." UNITED STATES V. CHERAMIE BO-TRUC NO. 5, INC., 538 F.2D 696, 699 (5TH CIR. 1976) AND CASES CITED THEREIN. AT THE SAME TIME, HOWEVER, THE CASES INDICATE THAT THE BURDEN IS ON THE AGENCY TO SHOW THAT THE PARTIES WOULD GAIN NOTHING BY A TRIAL-TYPE HEARING BECAUSE THERE ARE NO MATERIAL FACTS IN DISPUTE. INDEPENDENT BANK ASSOCIATION OF GA. V. BOARD OF GOVERNORS, 516 F.2D 1206, 1220 (D.C.CIR. 1975). HENCE, WHETHER THE SUMMARY DISPOSITION PROCEDURES ARE APPROPRIATELY APPLIED IN ANY GIVEN CASE IS A DIFFERENT QUESTION NOT CONSIDERED HERE. FN7 QUESTION 4:

(A) CAN THE COMPLAINTS SECTION OF THE REPARATIONS PROGRAM UNDER SECTION 14 OF THE CEA AND APPLICABLE PROVISIONS OF THE APA NEGOTIATE AND SETTLE CASES?

(B) CAN THE COMPLAINTS SECTION UNDER THE ABOVE AUTHORITIES CONDUCT PREHEARING CONFERENCES TO OUTLINE AND NARROW ISSUES, PROMOTE SETTLEMENTS, ETC.?

(C) CAN DISCOVERY BEGIN WHEN THE COMPLAINT IS STILL IN THE COMPLAINTS SECTION?

ANSWERS:

(A) SEE DISCUSSION BELOW.

(B) NO. SECTION 556(C) OF THE APA PROVIDES THAT EMPLOYEES PRESIDING AT THE HEARINGS MAY HOLD PREHEARING CONFERENCES. 5 U.S.C. SEC. 556(C)(6).

(C) UNDER THE CFTC'S RULES OF PRACTICE GOVERNING REPARATIONS PROCEEDINGS, DISCOVERY BEGINS AFTER FORMAL ADJUDICATION PROCEEDINGS HAVE BEEN COMMENCED. 17 C.F.R. SECS. 12.31, 12.41, 12.42, 12.62 12.65.

DISCUSSION:

A.

SECTION 554(C) OF THE APA PROVIDES THAT AGENCY SHALL GIVE ALL INTERESTED PARTIES OPPORTUNITY FOR "(1) THE SUBMISSION AND CONSIDERATION OF FACTS, ARGUMENTS, OFFERS OF SETTLEMENT, OR PROPOSALS OF ADJUSTMENT WHEN TIME, THE NATURE OF THE PROCEEDINGS, AND THE PUBLIC INTEREST PERMIT." 5 U.S.C. SEC. 554(C)(1). IF THE PARTIES TO THE DISPUTE CANNOT RESOLVE THEIR DIFFERENCES, THE AGENCY SHALL CONDUCT AN ADJUDICATION IN ACCORDANCE WITH SECTIONS 556 AND 557. 5 U.S.C. SEC. 554(C)(2).

THE APA DOES NOT PRESCRIBE ANY SPECIFIC PROCEDURES THAT AGENCIES MUST FOLLOW IN NEGOTIATING SETTLEMENT OF DISPUTES. THE PRECISE NATURE OF THE PRESUMABLY INFORMAL PROCEDURES LEADING TO CONSENT AGREEMENTS IS LEFT TO DEVELOPMENT BY THE AGENCIES THEMSELVES. SEE 4 MEZINES, STEIN, & GRUFF, ADMINISTRATIVE LAW SEC. 33.01 (1981).

NOR DO WE SEE ANY CONFLICT BETWEEN CFTC'S USE OF INFORMAL SETTLEMENT PROCEDURES AND THE TERMS OF SECTION 14 OF THE CEA. BOTH SECTION 14(E) OF THE CEA, 7 U.S.C. SEC. 18(E), AND THE CFTC'S RULES OF PRACTICE IN REPARATIONS PROCEEDINGS, 17 C.F.R. SEC. 12.34, ENVISION VOLUNTARY SETTLEMENTS OF REPARATIONS DISPUTES.

B.

SECTION 556 OF THE APA DIRECTS THAT "THERE SHALL PRESIDE AT THE TAKING OF EVIDENCE *** ONE OR MORE HEARING EXAMINERS APPOINTED UNDER SECTION 3105" OF TITLE 5 OF THE UNITED STATES CODE. 5 U.S.C. SEC. 556(B)(3). SUBJECT TO THE AGENCY'S PUBLISHED RULES AND WITHIN ITS POWERS, "EMPLOYEES PRESIDING AT HEARINGS" MAY, INTER ALIA, "HOLD CONFERENCES FOR THE SETTLEMENT OR SIMPLIFICATION OF THE ISSUES BY CONSENT OF THE PARTIES." U.S.C. SEC. 556(C)(6).

CFTC'S RULES OF PRACTICE IN REPARATIONS PROCEEDINGS AUTHORIZE THE PRESIDING OFFICER ASSIGNED TO THE PROCEEDING TO HOLD PREHEARING CONFERENCES AT ANY TIME AFTER INSTITUTION OF A FORMAL ADJUDICATORY PROCEEDING. 17 C.F.R. SECS. 12.61, 12.41-12.43. IN THE CONTEXT OF CFTC'S REPARATIONS PROGRAM, THIS OCCURS AFTER THE COMPLAINT SECTION HAS FORWARDED THE MATTER TO THE HEARING SECTION. THIS IS NOT TO SAY THAT THE PARTIES TO A REPARATIONS PROCEEDING MAY NOT SEEK TO RESOLVE THEIR DISPUTE INFORMALLY OUTSIDE THE FORMAL FRAMEWORK OF THE ADJUDICATION. AS NOTED EARLIER, THE APA, 5 U.S.C. SEC. 554(E)(1), AND CFTC'S RULES OF PRACTICE, 17 C.F.R. SEC. 12.34, ENVISION INFORMAL SETTLEMENTS. WE WOULD ONLY OBSERVE THAT ONCE A FORMAL ADJUDICATION HAS BEEN DOCKETED, THE COMPLAINTS SECTION MAY AS A PRACTICAL MATTER DEFER TO THE PRESIDING OFFICER RESPONSIBLE FOR THE ORDERLY CONDUCT OF THE PROCEEDING TO ENCOURAGE VOLUNTARY SETTLEMENTS OF THE DISPUTE.

C.

SECTION 14(A) OF THE CEA PERMITS A PERSON INJURED BY A PERSON REGISTERED UNDER THE CEA TO COMPLAIN TO THE CFTC. "IF, IN THE OPINION OF THE COMMISSION THE FACTS THEREIN CONTAINED WARRANT SUCH ACTION," A COPY OF THE COMPLAINT WILL BE FORWARDED TO THE RESPONDENT FOR HIS REPLY. 7 U.S.C. SEC. 18(A); 17 C.F.R. SECS. 12.21, 12.22, 12.23. AFTER RECEIPT OF THE RESPONDENT'S ANSWER, THE COMMISSION WILL THEN NOTIFY THE RESPONDENT AND COMPLAINANT OF THE INSTITUTION OF A FORMAL ADJUDICATION PROCEEDING IF, IN ITS OPINION, THE FACTS WARRANT INSTITUTION OF A PROCEEDING. 12 C.F.R. SECS. 12.27, 12.31. AFTER THE PROCEEDING IS DOCKETED AND A PRESIDING OFFICER IS ASSIGNED, DISCOVERY AS PERMITTED BY THE RULES OF PRACTICE MAY BEGIN AND SHALL BE COMPLETED WITHIN SUCH TIME AS THE PRESIDING OFFICER DIRECTS. 17 C.F.R. SEC. 12.62(E). UNTIL THE PARTIES ARE IDENTIFIED AND THE ISSUES JOINED BY THE RESPONDENT'S ANSWER AND THE COMMISSION PERMITTED AN OPPORTUNITY TO DETERMINE WHETHER A FORMAL ADJUDICATORY PROCEEDING IS WARRANTED, DISCOVERY WOULD NOT BE PERMITTED UNDER THE CFTC'S RULES OF PRACTICE NOR WOULD IT AS A PRACTICAL MATTER APPEAR ADVISABLE.

FN1 PERSONS REQUIRED TO BE REGISTERED UNDER THE CEA ARE SET FORTH AT 7 U.S.C. SECS, 6D, 6E, 6K AND 6M AND, WITH THE EXCEPTION OF "ASSOCIATED PERSONS," DEFINED AT 7 U.S.C. SEC. 6K, ARE DEFINED AT 7 U.S.C. SEC. 2.

FN2 OUR DISCUSSION OF THE ISSUE PRESENTED CONCENTRATES ON THE CONSTRUCTION OF SEC. 554(A) OF THE APA. AN ALTERNATIVE BASIS OF ANALYSIS WOULD BE TO INQUIRE WHETHER ADMINISTRATIVE ACTIONS AFFECTING INTERESTS PROTECTED BY DUE PROCESS REQUIRE AS A MATTER OF CONSTITUTIONAL LAW TRIAL- TYPE ADJUDICATIONS. SEE WONG YANG SUNG V. MCGRATH, 339 U.S. 3 (1950). BECAUSE WE CONCLUDE THAT, AS A MATTER OF STATUTORY CONSTRUCTION, THE APA'S ADJUDICATION PROCEDURES APPLY TO CFTC'S REPARATIONS PROCEEDINGS, WE HAVE NOT ADDRESSED THE DUE PROCESS RATIONALE IN DETAIL.

FN3 UNLIKE ADJUDICATIONS, THE APA PROVIDES FOR INFORMAL AS WELL AS FORMAL RULE MAKING PROCEDURES. 5 U.S.C. SEC. 553(A, C). FORMAL RULE MAKING IS TRIGGERED IN LANGUAGE ALMOST IDENTICAL TO SECTION 554(A)'S LANGUAGE TRIGGERING APPLICATION OF SECTION 556 AND 557 IN ADJUDICATIONS. IN THE RULE MAKING CONTEXT, THE SUPREME COURT HAS HELD THAT FORMAL RULE MAKING IS REQUIRED "ONLY WHERE THE AGENCY STATUTE, IN ADDITION TO PROVIDING A HEARING, PRESCRIBES EXPLICITLY THAT IT BE 'ON THE RECORD.'" UNITED STATES V. ALLEGHENY-LUDLUM STEEL CORP., 406 U.S. 742, 757 (1972); UNITED STATES V. FLORIDA EAST COAST R.R., 410 U.S. 224, 245 (1973). THESE DECISIONS WERE EXPLICITLY LIMITED TO RULE MAKING CASES AND, IN BOTH CASES, THE COURT CAREFULLY DISTINGUISHED RULE MAKING FROM ADJUDICATION, SUGGESTING THAT THE CONSTRUCTION OF THE TRIGGER LANGUAGE IN SECTIONS 553(C) AND 554(A) MAY VARY DEPENDING UPON THE CONTEXT. INDEED, IN UNITED STATES V. ALLEGHENY- LUDLUM STEEL CORP., ABOVE, 406 U. S. AT 757, THE COURT RECOGNIZED THAT THE PRECISE WORDS, "ON THE RECORD," ARE NOT TALISMANIC, BUT THAT THE CRUCIAL QUESTION IS THE NATURE OF THE PROCEEDINGS UNDER REVIEW.

FN4 REPRESENTATIVES OF COMMODITY PROFESSIONALS AND EXCHANGES INFORMED BOTH THE HOUSE AND SENATE COMMITTEES THAT THE 1974 AMENDMENTS TO THE CEA TO PROVIDE NEW STATUTORY GRIEVANCE PROCEDURES - COMMISSION REPARATIONS PROCEEDINGS AND CONTRACT MARKET ARBITRATION PROCEEDINGS - WERE "SUPERFLUOUS" AND WOULD CAUSE CONFUSION BECAUSE COMMODITY "COMPLAINANTS OF COURSE HAVE ACCESS TO THE COURTS." COMMODITY FUTURE TRADING COMMISSION ACT OF 1974, HEARINGS ON H.R. 11955 BEFORE THE HOUSE COMMITTEE ON AGRICULTURE, 93D CONG., 2D SESS. AT 249 (REMARKS OF CHARLES W. CHAPIN); AT 321 (REMARKS OF SHELDON BERENS, GENERAL COUNSEL FOR CONTINENTAL GRAIN CO.) AND SEE ALSO COMMODITY FUTURE TRADING COMMISSION ACT, HEARINGS ON S.2485, S.2578, S.2837 AND H.R. 13113 BEFORE SENATE COMMITTEE ON AGRICULTURE AND FORESTRY, 93D CONG. 2D SESS. AT 403, 415 (REMARKS OF ALVIN W. DONAHOO, MINNEAPOLIS GRAIN EXCHANGE); AT 737 (REMARKS OF RAY A. SCHOTLAND, PROFESSOR OF LAW).

NOTWITHSTANDING THIS AND OTHER TESTIMONY, BOTH THE HOUSE AND SENATE COMMITTEES REPORTED OUT H.R. 13113 AUTHORIZING REPARATIONS PROCEEDINGS. THE HOUSE REPORT ACCOMPANYING H.R. 13113 DESCRIBED THE REPARATIONS PROCEDURE AS "A FORMAL COMPLAINT PROCEDURE *** FOR THE ADJUDICATION OF GRIEVANCES." H.R. REP. NO. 93-979 AT 22. "IT IS PRIMARILY INTENDED AS A FORUM FOR AGGRIEVED CUSTOMERS OF PERSONS REGISTERED UNDER THE ACT ***" AND "AS A SEPARATE REMEDY DESIGNED TO SUPPLEMENT THE INFORMAL 'SETTLEMENT PROCEDURES' CONTEMPLATED OF THE CONTRACT MARKETS AND REGISTERED FUTURES ASSOCIATIONS WHICH ARE REQUIRED UNDER OTHER SECTIONS OF THE LEGISLATION ***." ID.

ELSEWHERE IN THE HOUSE REPORT, THE REPARATIONS PROCEEDINGS WERE AGAIN DESCRIBED AS FORMAL HEARINGS *** AND WILL BE IN ACCORDANCE WITH THE ADMINISTRATIVE PROCEDURE ACT." (ALTHOUGH WE VIEW THIS AS A STRONG INDICATION OF CONGRESS' INTENT, WE FURTHER OBSERVE THAT SINCE H.R. 13113 PROVIDED FOR A REVIEW DE NOVO OF COMMISSION REPARATIONS ORDERS, HAD H.R. 13113 BEEN ENACTED AS REPORTED BY THE HOUSE, THE APA'S ADJUDICATORY HEARING PROVISIONS WOULD BE TECHNICALLY INAPPLICABLE SINCE THEY DO NOT APPLY TO MATTERS "SUBJECT TO A SUBSEQUENT TRIAL OF THE LAW AND THE FACTS DE NOVO IN A COURT." 5 U.S.C. SEC. 554(A)(1).)

DURING THE FLOOR DEBATE ON H.R. 13113, MR. POAGE, THE CHAIRMAN OF THE HOUSE AGRICULTURE COMMITTEE AND THE BILL'S FLOOR MANAGER, HAD INSERTED IN THE RECORD OF THE DEBATE A SUMMARY OF THE BILL'S MAJOR PROVISION, INCLUDING THE STATEMENT THAT REPARATIONS HEARINGS INVOLVING AMOUNTS IN EXCESS OF $2,500 "WILL BE IN ACCORDANCE WITH THE ADMINISTRATIVE PROCEDURE ACT." 120 CONG. REC. 10737 (APRIL 11, 1974); SEE ALSO 120 CONG. REC. 10748 (APRIL 11, 1974) (REMARKS OF MR. THONE) ("THE CFTC IS EMPOWERED TO CONDUCT ADJUDICATORY PROCEEDINGS TO RESOLVE COMPLAINTS ***.").

FN5 REPORTED CASES INTERPRETING SECTION 6(B)'S STANDARD OF REVIEW OF THE CEA INDICATE THAT SOMETHING LESS THAN A DE NOVO REVIEW IS REQUIRED. SEE HALTMEIER V. CFTC, 554 F.2D 556, 560 (2D CIR. 1977) QUOTING WITH APPROVAL THE EXPLANATION OF SECTION 6(B)'S STANDARD IN GREAT WESTERN FOOD DISTRIBUTORS V. BRANNAN, 201 F.2D 476 (7TH CIR. 1953), BUT SEE NICHOLS & CO. V. SECRETARY OF AGRICULTURE, 131 F.2D 651 (1ST CIR. 1942) (DICTA THAT SECTION 6(B) AUTHORIZES THE COURT TO CONSIDER EVIDENCE DE NOVO TO DETERMINE QUESTIONS OF FACT).

FN6 THIS PROVISION WAS APPARENTLY MODELED AFTER AN IDENTICAL PROVISION IN SECTION 7(C) OF THE PERISHABLE AGRICULTURAL COMMODITIES ACT (PACA), 7 U.S.C. SEC. 499GC) (1976). SECTION 7(C) OF PACA HAS BEEN CONSTRUED TO ESTABLISH A REBUTTABLE PRESUMPTION IN FAVOR OF THE CORRECTNESS OF THE SECRETARY'S REPARATIONS ORDER. CONSOLIDATED CITRUS CO. V. GOLDSTEIN, 214 F.SUPP. 823 (E. PA. 1963); CALIFORNIA FRUIT EXCHANGE V. HENRY, 89 F.SUPP. 580 (W. PA. 1950). THE SECRETARY OF AGRICULTURE'S ORDERS UNDER THE PACKERS AND STOCKYARDS ACT, 7 U.S.C. SEC. 181, 210 (1976), ARE SUBJECT TO THE SAME STANDARD OF REVIEW IN ENFORCEMENT ACTIONS. IN ACTIONS TO ENFORCE INTERSTATE COMMERCE COMMISSION REPARATIONS AWARDS, THE SAME STANDARD APPLIES. SEE 49 U.S.C. SEC. 11705(D)(1) RECODIFYING AND RESTATING 49 U.S.C. SEC. 16(2) (1976).

FN7 IN DETERMINING CLAIMS FOR MONEY, AN AGENCY MAY ADOPT PROCEDURES FOR THE SUBMISSION OF ALL OR PART OF THE EVIDENCE IN WRITTEN FORM WHEN A PARTY WILL NOT BE PREJUDICED THEREBY. 5 U.S.C. SEC. 556(C). SUMMARY DISPOSITION PROCEDURES SUCH AS CFTC'S RULE CAN BE RATIONALIZED UNDER THIS PROVISION. HOWEVER, "MODIFIED PROCEDURES" SUCH AS DEVELOPED BY THE ICC TO COMBAT AN INCREASED WORKLOAD AND WHICH LIMIT THE USE OF ORAL HEARINGS AND CROSS-EXAMINATION IN VARIOUS ICC PROCEEDINGS, INCLUDING REPARATIONS CASES, SEE RELIANCE STEEL PRODUCTS CO., V. UNITED STATES, 150 F.SUPP. 118 (W. PA. 1957), CAN ALSO BE DEVELOPED THEREUNDER. SINCE SECTION 14(B) OF THE CEA PROVIDES THAT, WHERE THE DAMAGES CLAIMED ARE LESS THAN $5,000, A "HEARING" NEED NOT BE HELD AND PROOF MAY BE SUPPLIED IN THE FORM OF DEPOSITIONS OR VERIFIED STATEMENTS OF FACT, ONE CAN ARGUE THAT, BY NECESSARY IMPLICATION, DAMAGE CLAIMS IN EXCESS OF $5,000 REQUIRE A FULL HEARING UNLESS SUBJECT TO SUMMARY DISPOSITION ACCORDING TO CFTC'S RULE OF PRACTICE. 7 C.F.R. SEC. 12.67. HENCE, WHETHER THE CFTC COULD ADOPT ICC- TYPE "MODIFIED PROCEDURES" IN THE ADJUDICATION OF DAMAGE CLAIMS IN EXCESS OF $5,000 MAY BE ARGUABLE.